Claims to Surplus Funds (Judge Charles Margines)

On calendar is a hearing to determine the distribution of surplus funds deposited with the court after a non-judicial foreclosure.

Facts/Overview:

On September 27, 2013, The Wolf Firm filed a petition to deposit surplus proceeds of a trustee’s sale of a property at 1021 Granville Drive in Newport Beach (“Property”).

On October 2, 2013, the court granted the petition and $557,126.97 was deposited with the Court.

Potential Claimants:

William C. Ring

Mr. Ring was the owner of the Property and trustor under the foreclosed deed of trust.

California Franchise Tax Board (“FTB”)

Based on a Notice of State Tax Lien recorded on March 2, 2010, the FTB is owed $6,447.16 as of October 31, 2013. That amount accrues interest at the rate of $0.43 per day.

Richard R. Stahler

Mr. Stahler has a judgment against Mr. Ring from a probate case, In re Addie E. Haugh Trust Dated April 30, 1929, Orange County Superior Court case no. A208452. The judgment was for $1,000,000.00 against Ring for misfeasance and/or malfeasance in connection with his administration of the Trust from 1986 to 2001. Interest was to accrue at the legal rate from the entry of judgment until paid in full. The judgment was entered on June 24, 2002.

On April 2, 2003, the court entered an order to approve the judgment be distributed to the beneficiaries of the Trust. On August 29, 2003, the judgment was assigned to the beneficiaries: Paula Hooken, Norma Jean Hernandez, Richard Stahler, and Shirley Stahler.

An abstract of judgment was recorded on November 4, 2003. Another was recorded again on January 16, 2004 due to a spelling error. A renewed judgment was recorded on November 30, 2011.

Stahler claims a 25% interest in the judgment. He seeks the principal amount of $419,038.00, plus interest of $83,807.60 to October 14, 2013, for a total of $502,845.60. He also seeks interest of $114.80 for each day after October 14, 2013.

Analysis:

The court must distribute the deposited surplus funds to any and all claimants entitled thereto. Cal. Civ. Code § 2924j(d). The distribution of the funds must be in the following order of priority: (1) to the costs and expenses of exercising the power of sale and of sale, including the payment of the trustee’s fees and attorneys’ fees permitted pursuant to subdivision (b) of Section 2924d and subdivision (b) of this section; (2) to the payment of the obligations secured by the deed of trust or mortgage which is the subject of the trustee’s sale; (3) to satisfy the outstanding balance of obligations secured by any junior liens or encumbrances in the order of their priority; and (4) to the trustor or the trustor’s successor in interest. Cal. Civ. Code § 2924k.

A state tax lien attaches to all property and rights to property, whether real or personal, tangible or intangible, including all after-acquired property and rights to property, belonging to the taxpayer and located in California. Cal. Gov’t Code § 7170(a). A state tax lien is not valid as to real property against the right, title, or interest of any of the following persons where the person’s right, title, or interest was acquired or perfected prior to recording of the notice of state tax lien in the office of the county recorder of the county in which the real property is located: (1) a successor in interest of the taxpayer without knowledge of the lien; (2) a holder of a security interest; (3) a mechanic’s lienor; and (4) a judgment lien creditor. Cal. Gov’t Code § 7170(b).

Distribution of surplus funds

In order of priority, the funds should be distributed to Mr. Stahler, the FTB, and then to Mr. Ring.

Richard Stahler

The judgment was for the principal amount of $1,000,000.00, and it has accrued 10% interest from the day that the judgment was entered. Cal. Civ. Proc. Code § 685.010(a), 685.020(a).

Mr. Stahler states that he is entitled to 25% of the principal of the judgment as renewed, in the sum of $419,038, which is 25% of $1,676,152, as shown on the application for and renewal of judgment Stahler filed on October 14, 2011. On the application, it showed a credit for $203,387 and interest for $879,539.

There is insufficient information presented by Mr. Stahler as to what his portion of the judgment should be. The application for renewal of the judgment shows a credit of $203,387. There is no evidence of who received that money. Mr. Stahler’s claim also states that he has levied on the assets of Mr. Ring, has obtained funds payable only to himself, and that the claims of the other three beneficiaries are not identical to his. [Stahler’s First Amended Claim, p. 3, lines 20-26] It appears that Mr. Stahler received the $203,387, but that is not clear. If he received those funds, then his portion of the judgment must be reduced accordingly.

The hearing to determine the distribution of surplus funds must be continued. Mr. Stahler should provide additional evidence to show who received the $203,387, explain how that affected his portion of the judgment, and explain how he now calculates his portion of the judgment if he was the one who received that money. Because the hearing must be continued as to Mr. Stahler, it must also be continued as to the rest of the claimants, as their claims may be affected by the determination of what he is to receive.

The hearing to determine distribution of surplus funds is CONTINUED to February 5, 2014, at 1:30 P.M. Richard Stahler may submit a brief of up to four pages, plus additional evidence, regarding who received the $203,387, explaining how that affected his portion of the judgment, and explaining how he now calculates his portion of the judgment if he was the one who received that money. The evidence to be filed and served on or before December 24, 2013. Any response up to four pages, plus evidence, to be filed and served on or before January 6, 2014. No reply to be filed.